BoA ML: India Strategy 3QFY11 Preview: Growth still driven by JLR, commodities

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India Strategy
3QFY11 Preview: Growth still driven by JLR, commodities


Sectors (click on sector name for details)

• Autos 
• Potential Result Outperformer: Apollo Tyres 
• Potential Result Underperformer: Bajaj Auto
• Banks/ Financials 
• Potential Result Outperformer: BOI 
• Potential Result Underperformer: Union Bank
• Cement 
• Potential Result Outperformer: Ambuja 
• Potential Result Underperformer: Shree
• Consumer/ FMCG 

  Potential Outperformers: Godrej Consumers, Radico, Pantaloon, Titan 

  
  

  Potential Underperformers: HUL, Colgate

  
  
• IT and BPO Services 
• Potential Result Outperformers: HCLT, Educomp 
• Potential Result Underperformer: Wipro
• Industrials 
• Potential Result Underperformers: ABB, JPA, IVRC
• Pharmaceuticals 
• Potential Result Outperformers: Lupin, Cadila, Divis 
• Potential Result Underperformer: GSK
• Metals 
• Potential Result Outperformer: Nalco 
• Potential Result Underperformer: Tata Steel
• Oil & Gas, Petrochemicals 
• Potential Result Outperformers: ONGC, Reliance
• Real Estate 
• Potential Result Outperformer: DLF 
• Potential Result Underperformer: IBREL
• Telecom 
• Potential Result Outperformer: Bharti 
• Potential Result Underperformer: Reliance Com
• Utilities
  Potential Result Outperformer: Adani Power
  Potential Result Underperformers: NTPC, JP Power

Sectors (click on sector name above for details)


�� Standalone profit growth similar to previous quarter
The good news is that profit continues to show strong growth, with standalone
profit growth at 17.2% (similar to previous quarter) and consolidated profit growth
at 22.4% (substantially below the previous 2 quarters as the Corus yoy profit
growth reduces). The worries stem from (a) the concentration risk, with
commodities and JLR together accounting for nearly 2/3rd of the profit growth. (b)
Margin pressure, with ex-commodity EBITDA margins declining by 25 bps.

Margin pressure continues to worry
Aggregate Sensex EBITDA margins are expected to expand by 45bp, largely led
by commodities & Autos. However, ex-commodities margins are expected to
decline by 25bp as telecom companies drag down the margins. Over half the
companies in our coverage are expected to show drop in margins.

Energy, Banks & Tata Motors lead the growth; Telecom drags
Among the Sensex companies, Energy (RIL & ONGC), Financials (ICICI Bank &
HDFC Bank) and Tata Motors are expected to be the key contributors of the
growth. On the other hand Telecom (RCOM & Bharti) continues to drag down the
aggregate growth.

We still expect earnings downgrades
The strong commodity price has kept Sensex earnings practically unchanged,
with Sensex EPS at Rs1045 and 1300 for FY11E and FY12E respectively. We still
expect downgrades to FY12 earnings estimates.

Potential Result Outperformers/Underperformers
Based on our analysts' expectations for Q3FY11 results, we believe the following
shares could outperform/underperform in response to results:
Result Outperformers: HCL Tech, Lupin, Apollo Tyres and Bank of India
Result Underperformers: Bajaj Auto, Shree Cement and Rcom